In 1990, people were flocking to movie theaters to see Pretty Woman and Home Alone, Joe Montana and the San Francisco 49ers were winning another Super Bowl, the Hubble Space Telescope, which is still operational and whose replacement is soon to be sent into space, was launched. It was also the year that saw the beginning of the demolition of the Berlin Wall. And, in what is an extraordinary twist of irony given our current geopolitical situation in the Ukraine and Russia, former Soviet Union leader Mikhail Gorbachev was awarded the Nobel peace prize for his efforts to reduce the Cold War tensions with the United States and to help reform his nation.
From an economic and investment standpoint, the S&P 500 ended the year at 330.22, as it appeared we may be going to war with Iraq in the Persian Gulf. And you can see in the chart below, it was also the last full calendar year that we saw inflation run above the 5% level, as measured by the Consumer Price Index, CPI, coming in at 5.4%.
I would like to take a moment to put some economic history in perspective. In December 1990, the CPI closed at 133.8. As of January 2021, the Bureau of Labor Statistics reports that the CPI is currently at a level of 281.2. This means that over the last 31 years the cost of living, as reported, has slightly more than doubled.
During this same period of time, and even with the recent downturn in the US and global stock markets, the S&P 500 is still trading above the 4000 level. This means that the index, without reinvested dividends, has risen by a factor of more than 12X.
Additionally, let’s look at those cash dividends. This is what many retired people use as part of their income to help pay for the ever rising cost of groceries, gas and prescription drugs. In 1990 they totaled $12.09 on the S&P 500. Bloomberg estimates that the dividend level for calendar year 2021 was $61.03. This means that the income people receive has quintupled over the last 31 years. This is over and above the price gains outlined above.
Since 1990 inflation has risen slightly more than 2X.
Stock market values have gone up more than 12X over at that same timeline.
The cash income that people receive from their stock market dividends has gone up by 5X.
This friends, is why we stay invested for the long term. It is important to remember that even if you are close to, or in the early days of retirement, your timeline for your investment portfolio is likely 20 to 30 years. Getting fixated on what happens day-to-day in the markets and making moves on your emotional response to these events has been a recipe for disappointing results.
In light of the recent downturn in the markets, which has been driven largely by inflation fears, Federal Reserve Bank policy, and Russian aggressions against Ukraine, it is common for people to have concerns about the downturn in the value of their portfolios.
In light of this, it is important to remember that the world's wealthiest and most successful investors look to these events as opportunities to buy additional shares of growing companies at discounted values. One of my favorite quotes from Warren Buffett is included below. It is a great reminder, and an appropriate way to close this essay, as we continue “Moving Life Forward”.
© 2022 Jesse Hurst
The views stated are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.